8/3/2019 Highest NAV Guaranteed

http://slidepdf.com/reader/full/highest-nav-guaranteed 1/2

Highest NAV Guaranteed

Highest NAV Guarantee does not mean return is guaranteed. It is only a capital guarantee at a

 point of time. Let me explain with a simple example

Year Premium amount Invested NAV on that date No. Of Units

 Net of charges

1. Rs. 1,00,000/- Rs. 10/- 10,000

2. Rs. 1,00,000/- Rs. 10.70 9,346

3. Rs. 1,00,000/- Rs. 11.45 8,733

Rs. 3,00,000 Rs. 10.68 28,079

You now have 28,079 units at an average price of 10.68 on which it is guaranteed that at the end

of the policy term (say 10 years) you will get Rs. 3,21,505 (i.e. 28,079 units * highest NAV11.45). All that this ensures is that as long as you hold these to maturity and continue paying any

other premiums/charges that may be due you will get at least Rs. 3,21, 505 at maturity (whichnormally will be 4-7 years later). Your return of course will vary depending on when this amount

is due, even higher NAVs reached during the further Guarantee period (which is normally higher than the premium paying term which is assumed to be 3 years in this example) and when such

highest NAV was reached.

This is just an example to show how this is a capital guarantee product rather than a returnguaranteed product.

1.  The strategy is designed to guarantee capital and not guarantee returns and hence protection is inherent in the model itself. This precludes the chances of this return being

comparable to a long-term investment in equity.2.  There are a host of surrounding terms and conditions, which may make this product less

attractive. For example in one product the guarantee is available for the investment madein the first 3 years but premiums need to be paid for 10 years with the last 7 years

 premium effectively being a regular ULIP plan. In another such product the guaranteed

 NAV is not available in case of a drastic fall in NAV (defined in the product and unlikelyto be ever reached but nonetheless it detracts from the overall product positioning andvery unlikely that the customers would be aware of such a provision).

But to get back to the original question. Should you invest in such a product?

Firstly large investors can probably save on costs by having a Portfolio Manager run this scheme

for him (without the guarantee of course) and the charges will be much lower.

8/3/2019 Highest NAV Guaranteed

http://slidepdf.com/reader/full/highest-nav-guaranteed 2/2

For the relatively smaller investors, it is definitely a decent product provided you haverealistic expectations about returns (more likely to be nearer to a fixed income investment rather 

than a equity investment) and are committed to pay all due premiums till maturity and hold ontill maturity. 

My suggestion ± ask for an illustration for the amount of premium that you wish to invest in such

a product and then calculate the IRR based on the premiums paid by you and the accumulatedamount at the higher end of the spectrum (please remember this return is not guaranteed).

If that IRR is acceptable to you then you should go ahead. This is the best rule of thumb that Ican suggest. .

For smaller investors It may be advisable to stick to the standard Insurance plans, ELSS of mutual funds or tax based small savings plans such as PPF or NSC. (Caution: Please seek individual professional advise before you make any investments This is a general purpose article

and not meant to take the place of individual professional advise)